Get a Good Score: Steps for Building Credit Responsibly
By Arkansas Next on Friday, April 5, 2024
PAY YOUR BILLS ON TIME.
Late and missed payments damage your score. This “payment history” makes up 35% of your score.
DON'T SPEND MORE THAN YOU CAN AFFORD!
Aim to charge only enough that you can pay the balance off each month.
KEEP CREDIT USE TO A MINIMUM.
Even if you're approved for a $5,000 credit card limit, don't use it all. Aim to never spend more than 10% of your credit limits. This makes up 30% of your score.
YOUR SCORE IS IMPACTED BY THE LENGTH OF TIME YOU'VE HAD AN ACCOUNT.
The longer you prove that you are responsible for handling debt and credit, the more trustworthy credit agencies will find you. That’s why it’s better to keep a zero balance on a credit card than to close the credit card account. This makes up about 7% of your score.
OPEN A FEW LINES OF CREDIT, BUT NOT TOO MANY.
Having a diverse array of credit lines helps you appear more responsible – but, if you have too many, you’ll look like a risk.
AVOID PAYING INTEREST.
Pay off your credit card every month so that you don't incur interest fees. This will boost your score and save you money.
HAVE DIFFERENT TYPES OF CREDIT.
Creditors like to see that you can handle multiple kinds of credit. Having both installment and revolving credit will help boost this score. This makes up 15% of your credit score.
LIMIT HARD INQUIRIES.
Hard inquiries are instances when you apply for new lines of credit. Opening lots of credit cards or opening too frequently will negatively affect your score. Soft inquiries, like when you ask to view your credit report, don't affect your score. This makes up 10-12% of your credit score.
(Source: myfico.com)
$5,183 Arkansans' average credit card debt (Source: cnbc.com)
694 Average credit score in Arkansas; (Source: investopedia.com)
2,854 Gen Z's average credit card debt (ages 18-25 in the U.S.) (Source: cnbc.com)
Having no credit is worse than having bad credit.
“So, I need to go into debt on purpose?”
Well, kind of.
It may seem counterintuitive, but it is more advantageous to have some debt than it is to never establish credit at all. To have credit, you have to borrow money, meaning that, yes, you need to have a little bit of debt. But preferably, only as much as you can pay back.
Potential employers, apartment complexes, and even utility companies can all use your score to determine if you will be a good hire (are you responsible/do you have good judgment) or a good customer (will you pay your balance on time).
Just so we’re clear: This does NOT mean you have carte blanche to get a credit card and go on a shopping spree. But it does mean you can feel comfortable financing your first car or securing a credit card for emergencies only.
